This document discusses non-performing assets (NPAs) in banks, particularly public sector banks in India. It notes that NPAs occur when borrowers default on loan repayments of principal or interest, representing credit risk for banks. Growing NPAs negatively impact banks by reducing profits from interest income, increasing provisioning costs, and eroding capital resources. The rise in Indian public sector bank NPAs in recent years was attributed to the global recession and domestic economic slowdown impacting corporate and SME borrowers. Data showed thirty large companies owed over $2 billion to public banks, and gross NPAs as a percentage of advances have been trending upward, representing stressed assets that banks must address going forward.

1. - Raj Raisinghani
Non Performing Assets - Banks

2. Introduction
 The business of banking essentially involves
intermediation-acceptance of deposits and channeling
these deposits in to lending activities.
 Since the deposits received from the depositors have to
be repaid to them by the bank, they are known as banks’
‘Liabilities’ and as the loan given to the borrowers are to
be received back from them, they are termed as banks’
‘Assets’ so assets are banks’ loans and advances.
 In the traditional banking business of lending financed
by deposits from customers, Commercial Banks are
faced with the risk of default by the borrower in the
payment of either principal or interest.
 This risk in banking parlance is termed as ‘Credit Risk’
and accounts where payment of interest and /or

3. Implications of NPA
 The most important business implication of the NPAs
is that it leads to credit risk management assuming
priority over other aspects of bank’s functioning. The
bank’s whole machinery would thus be pre-occupied
with recovery procedures rather than concentrating on
expanding business.
 Other consequences would be reduction in interest
income, high level of provisioning (as banks are
required to keep aside a portion of their operating
profit as provisions, as NPAs increases banks have to
increase the amount kept aside as provisions which
will reduce their net profits) stress on profitability and
capital adequacy, gradual decline in ability to meet
steady increase in cost, increased pressure on Net
Interest Margin (NIM) thereby reducing
competitiveness, steady erosion of capital resources
and increased difficulty in augmenting capital
resources.

4. Trends in NPAs in Public Sector
Banks

5. Reasons for growing NPA
 The rising NPAs in recent period can attributed to
the affects of the global recession coupled with
internal factors like the slowdown in the domestic
economy which had adversely affected the
performance of corporate as well as small and
medium enterprises leading to a negative impact
on credit quality.
 The asset quality of PSBs aggravated in
comparison to private sector banks as big ticket
corporate loans form a larger share of the credit
portfolio for PSBs. Data available with the
Finance Ministry showed that thirty companies
together owed Rs.16,877 crore as on September
30, 2013 to Public Sector Banks.

6. Gross NPAs for public sector
Banks

7. The picture NOW

8. Stressed assets as a percentage of
total advances

9. What Next ?
 We will have NPAs for each bank
separately.
 It will help to understand the
outstanding for corresponding bank.
 It will help to compare its NPA
growth with the performance.

10. Thank You